Shares in a limited liability company (GmbH) in Germany can be transferred by sale, gift, or inheritance. Companies cannot prevent the possibility of transferring shares. However, corresponding restrictions can be stipulated in the articles of association so that the company’s individual requirements must also be considered in addition to the legal possibilities. Such a step requires careful planning and solid expertise to ensure that all relevant aspects of German corporate and tax law are considered.
The German law firm Schlun & Elseven Rechtsanwälte offers skilled and committed legal advice. Whether it concerns the transfer of company shares, communication with shareholders or the drafting of contracts, our corporate and M&A lawyers will support you with their expertise. They will ensure that all formalities are complied with and that your interests are always protected. If you need our legal support, please do not hesitate to contact us directly.
Shares of a limited liability company (GmbH) are freely transferable under German law (Section 15 of the German Limited Liability Companies Act – GmbHG) where it permits the following:
(1) Shares are alienable and inheritable.
(2) Where shareholders purchase further shares in addition to their original share, these remain legally independent.
(3) An agreement concluded in notarial form is required for the transfer of shares by shareholders.
(4) An agreement establishing a shareholder’s obligation to transfer a share likewise requires notarial form. However, an agreement concluded without such notarial form becomes valid once the transfer agreement is concluded pursuant to subsection (3).
(5) The articles of association may stipulate that the transfer of shares be made dependent on further conditions, in particular the company’s consent.
Therefore, although companies cannot ban the selling or inheriting of their shares in Germany, they can place rules and conditions within their articles of association. Shareholders, accordingly, can place restrictions within the articles of association regarding unknown external persons becoming involved with the company. By having rules requiring the consent of the majority of shareholders, the company can prevent unsuitable persons from becoming shareholders. A right of first refusal for the shareholders can be established in the articles of association.
Generally, transferring GmbH shares requires notarisation as the sale of GmbH shares constitutes a contract under the law of obligations in Germany. In addition, the transfer of GmbH shares must be entered into the German commercial register (Handelsregister) to be legally effective. A notary and lawyer should, therefore, be consulted to ensure that the transfer of shares complies with German law.
When selling shares of a limited company in Germany, the economic factor is central. However, the purchase price is not the only decisive factor. Beforehand, it is essential that you familiarise yourself with the costs that you will incur in connection with such a transaction and seek comprehensive advice in this regard. Two aspects should not be underestimated:
- notary fees and
- applicable taxes.
The notary fees are based on the amount of the purchase price under the German Court and Notary Expenses Act (GNotKG) and are therefore individualised. These costs can be avoided if the shares go to co-partners. In such a case, a redemption of the company shares can be considered, in which the shares are withdrawn from the “seller” and divided among the remaining co-partners. The seller is paid a settlement. As this is not a sale in the legal sense, neither notarisation nor the payment of notary fees is required. For reasons of legal uncertainty and possible invalidity, transferring the property to a third party is not recommended. In principle, it is not advisable to save on notary fees because you may risk your legal transaction being deemed invalid, which could involve you in a lengthy legal dispute.
Following Section 17 of the German Income Tax Act (EStG), the taxes payable on the sale of the GmbH shares are based on the amount of the capital gain. This is different from the purchase price. Rather, it is the amount by which the sales price exceeds the acquisition costs after deducting the sales costs. Furthermore, possible allowances, deadlines, and company profits or losses must be considered. A detailed examination and preparation are essential to avoid being surprised by the tax burden after the transaction. Our German tax law experts will answer your questions and examine possible tax optimisation options for your transaction. In principle, risk optimisation methods and proper risk management are decisive for achieving the best possible result in M&A transactions.
Under German law, shares in a German limited liability company (GmbH) can be sold to companies based in other countries. However, specific requirements must be observed in such cases, as failing to do so can lead to a collapse in the deal. In particular, the transfer of GmbH shares must be notarised to complete this transaction. This is a formality that serves to establish the identity of the purchaser. The notary must ensure that the other company actually exists. In Germany, the notary can examine the commercial register and thus locate the company’s registered office in Germany. However, this proof can be more challenging to provide if the company is based abroad. In some countries, some registers are similar to the German commercial register. In these cases, an extract from the foreign register can be submitted. However, the notary must understand the proof of existence, so it should generally be written in English or German. A notarised German translation should be requested if it is not in English.
The document may need to be legalised if the extract has been certified by a foreign authority/register. If the foreign state is a member of the Hague Convention, this legalisation can be carried out with the help of an apostille. The German lawyers at Schlun & Elseven Rechtsanwälte will answer your questions about legalisation and apostilles. The apostille should be applied for in sufficient time to avoid legal complications.
In Germany, the fundamental difference between a sale and a gift is that the gift is free of charge, unlike the payment of a purchase price on the sale. If you do not want to sell your company shares for a profit but rather give them away, for example, to a relative, there are some significant differences compared to a sale.
First, the gift tax must be considered, or rather the allowances that must be adhered to in order to avoid it. Other types of tax should also be checked in advance of the gift. In addition, the gift is a transfer of shares, so that notarisation is also required here.
In the case of a gift to minors, the protective provisions under German civil law must be observed. This may result in the gift being classified as not legally favourable due to potential default liability or liability for capital repayment, meaning that a supplementary guardian must be appointed. Our lawyers will examine all aspects of the gift and ensure the best possible handling.
Company shares can also be transferred to another person by way of inheritance. A corresponding arrangement should be made at an early stage and in consultation with the beneficiary. Legal advice is strongly recommended when drawing up a will, particularly regarding the right to a compulsory portion (Pflichtteil) in Germany.
Provisions in the articles of association that stipulate the cancellation of shares upon the shareholder’s death are invalid. Restrictive provisions, on the other hand, can be effective. Such restrictions can, for example, determine whether the heir remains a shareholder in the company. If handled carefully, the company’s articles of association can allow the heir’s share to be redeemed after they join the company. However, this step usually involves the payment of a fee by the company if it redeems the shares or transfers them to another shareholder. The articles of association must be examined in detail here.
Therefore, the heir becomes a shareholder of the GmbH. They can exercise their rights jointly if there is more than one heir. In this case, the heirs do not acquire independent status. For example, where there are two heirs, they receive half of the share each as owners of the stake in the GmbH. However, heirs may also be uncertain regarding how they wish to proceed with these shares. It may not be in their best interest to keep them.
Similarly, testators may prefer to give their company shares to individuals outside their family and be unaware of how to ensure this is carried out correctly. It is advisable to consult with legal professionals with experience and knowledge of German inheritance law and business realities. At Schlun & Elseven Rechtsanwälte, our professionals advise on all matters relating to business succession planning and provide you with a legally compliant and customised solution for your requirements.
If you are considering buying shares and investing in a particular company, you should always check the list filed with the registry court to ensure that the person you want to buy from is a shareholder. Only those entered in the list of shareholders following Section 16 GmbHG are considered shareholders. And you can only acquire company shares with legal certainty from a listed shareholder. After acquisition, you must also ensure that you are entered there.
You should also consider a due diligence check. Due diligence enables you to conduct a risk assessment of the company and identify possible risks in connection with the purchase. The German lawyers at Schlun & Elseven conduct a comprehensive due diligence review for you. We examine the company from multiple angles, including legal due diligence (supply contracts, customer contracts, licences, leases and organisational documents), IP due diligence (patents, trademarks, copyrights, utility models and other intellectual property) and red flag due diligence (a less in-depth analysis that focuses on identifying the most critical risks).
Our due diligence service ensures that you can better assess the company’s value and determine whether the purchase of these shares is advisable. Please do not hesitate to contact us directly for expert advice and guidance.
Practice Group: German Corporate Law
Practice Group:
German Corporate Law
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